The U.S. District Court for the Central District of California recently issued an interesting decision (pdf) denying class certification in 15 consolidated consumer class actions against the maker of 5-hour ENERGY drinks.
Can you have a class action if you can’t figure out who’s in the proposed class? According to many in the plaintiffs’ bar, the answer is “yes.” But as we have discussed in prior blog posts, there is an emerging consensus to the contrary. Most courts agree that plaintiffs in consumer class actions have the burden of proving that members of the putative class can be identified (i.e., that the class is ascertainable). And most of those courts have held that it is not sufficient for plaintiffs to rely upon affidavits by would-be class members who attest that they fall within the class definition.
The Third Circuit adopted both of those principles last fall in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013). As we have reported, that court recently denied en banc review over objections by plaintiffs’ lawyers that taking ascertainability seriously would render many class actions unsustainable.
As it turns out, a growing number of other courts are following Carrera’s lead in holding that classes whose membership cannot be determined flunk the ascertainability requirement and therefore cannot be certified.
For example, in Karhu v. Vital Pharmaceuticals, Inc. (pdf) (S.D. Fla. Mar. 3, 2014), the court refused to certify a putative class of purchasers of weight-loss supplements. The court explained that the plaintiffs had failed to show any objective, administratively feasible method of ascertaining the identities of class members. Class members could not be identified from the defendants’ records because the products were sold to retailers, and defendants therefore had no database of end-user consumers. The plaintiffs could not show that the purchasers could be identified from the records of third-party retailers. And, of course, few if any purchasers would have retained receipts from such purchases years after the fact.
The plaintiffs argued that class members could simply submit affidavits confirming that they bought the supplements at issue during the relevant time period. But the court recognized that this process would be extremely unwieldy, and would inevitably devolve into “a series of mini-trials” over the circumstances of particular purchases that would “defeat the purpose of class action treatment.” And the court added—citing Carrera—that simply exempting the affidavits from individualized challenges would lead to fraudulent claims, which “could dilute the recovery of genuine class members.”
Similarly, a federal court recently decertified a California class action—in part on ascertainability grounds— in In re Pom Wonderful LLC Marketing and Sales Practices Litigation (pdf) (C.D. Cal. Mar. 25, 2014). The plaintiffs alleged that Pom Wonderful had misled a class of California customers with purportedly false or misleading statements in advertising about the “various health benefits” of “certain Pom juice products.” But the court held that class members could not be identified, and therefore that no “ascertainable class exists.” In reaching that conclusion, the court provided some useful guidance on how ascertainability works:
- “Class actions, and consumer class actions in particular, each fall on a continuum of ascertainability dependent upon the facts of the particular case or product.”
- “While no single factor is dispositive, relevant considerations include the price of the product, the range of potential or intended uses of a product, and the availability of purchase records.”
- “In situations where purported class members purchase an inexpensive product for a variety of reasons, and are unlikely to retain receipts or other transaction records, class actions may present such daunting administrative challenges that class treatment is not feasible.”
Applying these principles, the court readily concluded that the proposed class in Pom Wonderful “falls well towards the unascertainable end of the spectrum.” That was so for multiple reasons, including that (i) “millions of consumers paid only a few dollars per bottle”; (ii) “[f]ew, if any consumers, are likely to have retained receipts”; (iii) “[n]o bottle, label, or package included any of the alleged misrepresentations” (as they were all contained in advertising); and (iv) “consumer motivations” for purchasing Pom juice “likely vary greatly, and could include a wide array of sentiments such as ‘I was thirsty,’ ‘I wanted to try something new,’ ‘I like the color,’ ‘It mixes well with other beverages,’ or even, ‘I like the taste,’ or, as Plaintiffs contend, ‘It prevents prostate cancer.’” As a result, “there is no way to reliably determine who purchased [the challenged] products or when they did so.”
(The decision also contains an extensive discussion of why the plaintiffs’ proposed damages models failed to satisfy the predominance requirement under Comcast Corp. v. Behrend.)
Carrera, Karhu, and Pom Wonderful should be helpful for defendants who oppose class certification when the proposed class consists of purchasers of consumer products for which there are no customer lists. In these cases, plaintiffs often have no real plan for satisfying the ascertainability requirement other than by inviting a show of hands—via barebones affidavits—from the (relatively few) individuals who might want a small payout from a potential class fund.
In response, defendants routinely (and appropriately) argue that affidavits are not good enough, because due process entitles them to challenge an individual’s claim that he or she purchased a given product, such as by cross examination at a trial. Recognizing that the right to individualized cross-examination would render a trial unmanageable—making class certification inappropriate—plaintiffs sometimes argue that fraudulent claims can be winnowed out through the use of a claims administrator.
That approach strikes us as improper. To be sure, in class action settlements, the parties often agree that a claims administrator may make judgments to determine whether a claimant truly is a class member who qualifies for benefits and to assess whether any submitted claims are fraudulent. But that agreement reflects one of the compromises of settling a case, in which defendants trade away the right to cross-examine each putative class member in exchange for certainty, finality, and—most significantly—a substantial discount on the potential liability claimed by the plaintiff and his or her counsel.
By contrast, in a litigated case, defendants’ due process rights cannot be so easily jettisoned. In the absence of party agreement, how can it be that the administrative determinations of an outside third party serve as an adequate substitute for a defendant’s right to cross-examine its accusers and for judicial resolution of factual disputes? (We leave to one side whether assessments by claims administrators would be accurate, but commend to our readers an article by Alison Frankel discussing an interesting amicus brief on the subject that was filed in Carrera.)
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In short, when it comes to ascertainability, the list of questions goes on and on. Defendants targeted by consumer class actions where customer lists are not readily available may wish to insist upon answers.
Plaintiffs routinely bring consumer class actions under statutes that allow only consumers—not businesses—to bring claims, or that are limited to transactions solely for personal or household purposes. See, e.g., Electronic Funds Transfer Act, 15 U.S.C. § 1693a(2); Real Estate Settlement Procedures Act, 12 U.S.C. § 2606(a)(1); California’s Consumer Legal Remedies Act, Cal. Civ. Code § 1780. But in some cases, the “consumer” requirement can be the Achilles’ heel for class certification. If it is difficult to determine whether a particular customer is a “consumer” without individualized inquiries, a proposed class action may flunk the predominance, ascertainability, and manageability requirements for class certification.
For example, in a recent zip-code class action, Leebove v. Wal-Mart Stores, Inc., the retailer was accused of improperly requiring customers paying by credit card to provide their phone numbers and addresses in violation of California’s Song-Beverly Credit Card Act. But that statute creates a private right of action only for a “natural person to whom a credit card is issued for consumer credit purposes.” Cal. Civ. Code § 1747.02(d). Business entities and people who use corporate credit cards are not eligible to sue.
That fact was crucial for defeating class certification in Leebove. As the court explained, “before liability could be established with respect to each class member, individualized proof regarding whether each class member’s credit card was issued as a consumer or as a business card would have to be produced.” Although the court also identified other defects in the proposed class, the need for mini-trials as to whether each class member qualified as a “consumer” under the statute was key to the court’s holding that the plaintiffs had failed to establish predominance.
There should be many other opportunities to make this kind of argument either in opposing a motion for class certification or in moving to strike class allegations at the very outset of the case. Here are some ideas (and helpful authority):
- If the class is defined to include only consumers, does the need for individualized inquiries into whether a purchaser qualifies as a consumer or a business render the class non-ascertainable? See, e.g., Walewski v. Zenimax Media, Inc., 502 F. App’x 857, 861 (11th Cir. 2012).
- Alternatively, is the class overbroad because it includes businesses? See, e.g., Mazur v. eBay Inc., 257 F.R.D. 563, 567 (N.D. Cal. 2009).
- Or is the question whether the putative class member qualifies as a consumer so individualized as to either defeat predominance or make a classwide trial unmanageable? See, e.g., Kennedy v. Natural Balance Pet Foods (pdf), 361 F. App’x 785, 787 (9th Cir. 2010); Johnson v. Harley-Davidson Motor Co. Group, LLC (pdf), 285 F.R.D. 573, 583 (E.D. Cal. 2012); Ballard v. Branch Banking & Trust Co., 284 F.R.D. 9, 13-16 (D.D.C. 2012); Ewert v. eBay Inc., 2010 WL 4269259, at *9 (N.D. Cal. Oct. 25, 2010).
- Finally, if the named plaintiff himself or herself arguably is not a “consumer” under the applicable law, are his or her claims typical of those of the absent class members? See, e.g., Aberdeen v. Toyota Motor Sales, U.S.A. (pdf), 2009 WL 7715964, at *6 (C.D. Cal. June 23, 2009), aff’d in relevant part, 422 F. App’x 617 (9th Cir. 2011).
Since 2006, companies based outside California have been alert to the potential burdens of class actions under California’s Invasion of Privacy Act (“CIPA”), Cal. Penal Code § 630 et seq. The laws of most states, as well as federal law, allow telephone calls to be recorded with the consent of one party to the call. Accordingly, companies in those states usually can record customer service calls for quality-assurance purposes without the need to procure the customer’s consent because the call-center employee, as a party to the call, can consent to the recording. California, however, is one of 12 states that allow recording only if all parties to the call consent. (The other so-called “two-party consent” states are Connecticut, Florida, Illinois, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, Pennsylvania, and Washington.) The plaintiffs’ bar has been trying to use California’s extremely pro-plaintiff privacy laws, such as the CIPA, to turn this innocuous business practice into an opportunity to extract class-action settlements from companies.
In 2006, the California Supreme Court held that CIPA applies even when one party to the conversation is outside California in a state that authorizes recording with the consent of a single party to the call. Kearney v. Salomon Smith Barney, Inc., 39 Cal. 4th 95 (2006). The court explained that, under California’s choice-of-law rules, California had the overriding interest in applying its privacy laws, such as CIPA, whenever “national or international firms” headquartered outside of California record “conversations with their California clients or customers.” And, like Flanagan v. Flanagan, 27 Cal. 4th 766 (2002), Kearney applied CIPA regardless of the content of the conversations, though that likely was because Kearney involved calls to a financial institution and Flanagan involved calls between family members—i.e., situations where callers arguably have an expectation of privacy. Nonetheless, an onslaught of consumer class actions followed and continue to this day.
Companies facing CIPA suits have been making progress. More and more courts are recognizing that CIPA was not intended to apply to calls to customer-service centers. See Shin v. Digi-Key Corp., 2012 WL 5503847 (C.D. Cal. Sept. 17, 2012); Sajfr v. BBG Commc’ns, Inc., 2012 WL 398991 (S.D. Cal. Jan. 10, 2012). They’ve also recognized that customer-service calls usually do not involve private information. See Faulkner v. ADT Sec. Servs., Inc., 706 F.3d 1017, 1020 (9th Cir. 2013); Shin; Safjr. And they’ve found that individualized issues of privacy and consent under CIPA preclude class certification. See Torres v. Nutrisystem, Inc., 289 F.R.D. 587 (C.D. Cal. 2013).
The recent decision in Jonczyk v. First National Capital Corp., No. 13-cv-959-JLS (C.D. Cal. Jan. 14, 2014), provides another arrow in companies’ quivers—and a large one at that. In that case, First National and its employee were located in California and the plaintiff called in from her home in Missouri. The district court applied a conflict-of-law analysis and concluded that the law of Missouri (a one-party consent state) should apply, not California’s CIPA. The court distinguished Kearney, which involved Salomon Smith Barney’s California clients, and held that California had little interest in a Missouri resident’s claims, while Missouri had valid interests in limiting the reach of its wiretapping statute. In so holding, the court cited our victory in Mazza v. American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012) for the proposition that “maximizing consumer and business welfare … does not inexorably favor greater consumer protection.” The district court’s extension of Mazza to the privacy context, and CIPA specifically, represents a significant step forward for companies doing business in California. The decision should be particularly helpful to companies in California who receive out-of-state customer calls that are recorded.
The California Supreme Court held in Arias v. Superior Court that a plaintiff may bring a representative action on behalf of himself and other employees to recover civil penalties under California’s Private Attorney General Act (“PAGA”) without meeting California’s class-certification requirements. The court reasoned that, unlike a class action, where the plaintiff is suing on behalf of individual employees, a PAGA plaintiff steps into the shoes of state labor-law enforcement agencies. While that holding governs California state courts, the federal district courts have been split as to whether plaintiffs bringing PAGA claims in federal court must seek class certification under Federal Rule of Civil Procedure 23.
On January 14, 2013, Judge Gutierrez of the Central District of California held that PAGA plaintiffs need not bother with class certification in federal court. See Alcantar v. Hobart Serv. (No. 5:11-cv-1600-PSG-SP). In that case, the plaintiff had filed a class action and a PAGA action alleging overtime, meal-period, and other wage-and-hour violations. The court denied class certification and granted in part defendants’ motion for summary judgment. The defendants later filed a motion in limine, asserting that the plaintiff could no longer proceed with his PAGA claim because plaintiffs who cannot meet Rule 23’s class-certification requirements lack standing to represent the rights and interests of third parties. The district court denied the motion, holding that although a class action allows individuals to seek financial remuneration to redress personal injuries, a PAGA action is an enforcement action brought on behalf of the state labor agencies to penalize noncompliant employers, making class certification unnecessary.
The Alcantar court also rejected defendants’ argument that the PAGA claims could not be tried on a representative basis without violating defendants’ due process rights. Among other things, the defendants argued that they should have the right to call each employee to the stand as they would in defending a claim under California’s Unfair Competition Law (UCL). The Alcantar court disagreed, holding that, “unlike claims under the UCL, which require an individualized determination of the particular restitution due to each plaintiff, PAGA claims require only a showing that a Labor Code violation has occurred.”
Finally, the Alcantar court rejected the defendants’ remaining argument that Wal-Mart Stores, Inc. v. Dukes forbids the plaintiff from calculating the amount of PAGA penalties owed solely by using estimates derived from representative testimony and statistics. The district court disagreed, noting that the Dukes Court had analyzed the permissibility of “Trial by Formula” in the specific context of Title VII of the Civil Rights Act, while both the Ninth Circuit and California courts have permitted awards for California Labor Code violations based on a representative sampling of class members. (Note: The issue of use of representative testimony and statistical evidence at trial in wage and hour class action lawsuits is pending before the California Supreme Court in Duran v. U.S. Bank Nat’l Ass’n., No. S200823.)
Alcantar may give new encouragement to the plaintiffs’ bar in their pursuit of PAGA claims. Under its approach, defendants in PAGA cases are deprived not only of the protections of Rule 23, but also the due process right to present individualized defenses to each employee’s claim. Whether other district courts will follow Alcantar’s lead, or instead follow the decisions of other courts that (in our view) are more consistent with Rule 23 and due process—and how the federal appellate courts will eventually settle this issue—remains to be seen. In the meantime, defendants may be able to distinguish the Alcantar court’s reasoning by showing that their cases involve fact patterns where proof of a statutory violation will require highly individualized, fact-sensitive mini trials.
The answer is a resounding “no,” says Judge Cormac Carney of the Central District of California in a recent significant decision in litigation over the third generation Toyota Prius and 2010 Lexus HS250h vehicles (In re Toyota Motor Corp. Hybrid Brake Mktg., Sales Practices & Prods. Liab. Litig. (pdf), No. SAML 10-2172-CJC (C.D. Cal. Jan. 9, 2013).
Judge Carney is presiding over a multidistrict litigation (consolidating five class actions) against Toyota, in which the plaintiffs allege that a defect in the Prius’s anti-lock brake system (“ABS”) causes increased stopping time and distance when a driver hits the brakes.
The court identified a variety of flaws with the proposed class action, but “most problematic” was the fact that a “substantial majority” of the class members had “never suffered an actual injury that was caused by a manifest defect in the ABS.” In part, that was because Toyota established that it had recalled the vehicles in response to customer concerns and installed updated software that effectively resolved the brake feel issue. Thus, the court concluded that the class could not be certified.
Notably, as part of its denial of class certification, the court also rejected plaintiffs’ argument that they suffered an injury because they would not have paid the same purchase price for their vehicles if they had known of the ABS issue. Some courts have accepted a similar “premium price” or “benefit of the bargain” theory. But Judge Carney observed that “merely offering a creative damages theory does not establish the actual injury that is required to prevail on [plaintiffs’] product liability claims.” The court explained that as a result of the recall and software fix, the majority of the class members “received exactly what they paid for”—a vehicle with brakes that operated without incident—and incurred no financial loss whether through resale or repair costs.
In its decision, the court explained that, although a small proportion of the proposed class may allege actual injury (in the court’s view) because of an ABS issue prior to the recall, determining which of many possible factors caused any such harm “would require highly individualized, fact-intensive inquiries” not suitable for a class action. Judge Carney rejected the notion that “a class of thousands” should be certified where only a “few suffered an actual injury that resulted from a manifest defect in the ABS.” Such a class action, he concluded, would not be “a superior, fair, and efficient method for resolving the parties’ controversy.”
This decision is a significant one—particularly so in light of the court’s rejection of plaintiffs’ premium-price theory. It provides a welcome counterpoint to a decision by the Sixth Circuit (in a case against Whirlpool) and a decision by the Seventh Circuit (in a case against Sears) appearing to accept a similar theory—which, if it gains broader currency—could threaten to usher in a new wave of product-defect and warranty class actions premised on oddball alleged defects that few purchasers experience. Like Judge Carney in Toyota—and the Eleventh Circuit in Walewski, which we recently reported—courts should recognize that purchasers of products that perform as intended have gotten precisely what they paid for and therefore have no claim against the manufacturer or retailer. Enrolling those satisfied purchasers in vast litigation classes can only impose unwarranted costs on manufacturers and retailers and ultimately drive up prices paid by consumers.
A recent federal court decision has addressed the knotty issue of a defendant’s right to discovery in an FLSA collective action from the individuals who opt into the class after it is conditionally certified but before the court decides whether to grant final certification.
The case, Scott v. Bimbo Bakeries, USA, Inc. (pdf), No. 10-3154 (E.D. Pa. Dec. 11, 2012), featured a claim that the defendant’s delivery drivers—who were independent contractors—were de facto “employees” and thus entitled to various remedies under the FLSA. After the court conditionally certified the collective action, roughly 650 individuals opted into the class. To prepare its opposition to the motion for final certification of the class, the defendant sought leave to (a) propound written discovery to all 650 opt-ins, giving them 30 days to respond; and (b) depose 260 opt-ins (i.e., 40% of the opt-in class). The named plaintiff sought to limit written discovery to a representative sample of opt-ins, not to exceed 10%, and to prohibit more than 15 depositions of the opt-ins.
The court’s order reads like a defeat for the defendant. In particular, the court limited the scope of discovery to issues related to the upcoming motion for final certification. The court barred the defendant from propounding written discovery to more than 10% of the opt-ins despite the fact that many courts across the country have allowed broader written discovery, and directed that the opt-ins should get 60 days rather than 30 days to respond. And the court deemed the request to take 260 depositions to be excessive, instead limiting the defendant to 20 total depositions, including those of the named plaintiff.
But by requesting to take written discovery from every opt-in and to depose almost half of them, the defendant has set the stage for its opposition to final certification. The defendant can use the results of the discovery to show that the circumstances surrounding the opt-ins’ FLSA claims vary and warrant individualized inquiry. And the defendant can point out that it would have found even more distinctions and variations had it been permitted broader discovery, and that a trial of the collective action would necessitate a one-by-one assessment of the claims. After all, even if the court limits discovery to a “sample” of employees, the Supreme Court has made abundantly clear that a trial plan cannot limit the defendant to raising but a “sample” of the defenses that it has a statutory right to present. Although the Supreme Court relied upon the Rules Enabling Act and Rule 23 to reject the “Trial by Formula” approach that the plaintiffs had suggested in Wal-Mart Stores, Inc. v. Dukes, the defendant in an FLSA collective action can use due process as the spring board for the same argument.
The plaintiffs’ bar often uses adventuresome choice-of-law arguments to attempt to grease the skids towards certification of nationwide classes. Earlier this year, in a blockbuster decision, the Ninth Circuit rejected one of plaintiffs’ key arguments in Mazza v. American Honda Motor Co. (pdf), 666 F.3d 581 (9th Cir. 2012). In that case, the plaintiffs had argued that California consumer-protection law should apply to the claims of all putative class members nationwide because the alleged wrongdoing supposedly emanated from that state. The Ninth Circuit held that the plaintiffs’ approach would contravene fundamental principles of federalism by ignoring the materially different consumer protection laws of the other states where the challenged transactions actually occurred. (Mayer Brown represented defendant Honda; here is our report on the decision.)
Since then, plaintiffs in consumer false advertising cases have scrambled to find ways to answer Mazza. One tactic—used frequently against food companies—is to bring nationwide class claims under the federal Magnuson-Moss Warranty Act (MMWA), 15 U.S.C. §§ 2301 et seq. Plaintiffs assumed that the existence of a federal claim—allowing the entire nationwide class’s claims to be evaluated under federal law—would do the trick. Plaintiffs thus often allege that statements on a product label, such as “All-Natural Ingredients,” constitute a written warranty by the manufacturer under the MMWA and that a breach of that warranty occurred when consumers did not realize the advertised benefits.